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During a normal spring, the sight of orchards bursting with clusters of almonds is a boon throughout California’s Central Valley. Here is money growing on trees.
Not this year.
As Scott Phippen looks out on his orchard on a recent afternoon, he feels a sense of foreboding tinged with rage. His warehouse is stuffed with the leftovers of last year’s harvest — 30 million pounds of almonds stored in wooden and plastic bins stacked to the rafters, and overflowing into his yard. Orders assembled for customers sit in giant white plastic bags and cardboard cartons arrayed across pallets, awaiting ships that can carry them across the water to Asia, the Middle East and Europe.
The almonds are here, the customers are over there, and the global shipping industry is failing to span the divide.
Every week, Mr. Phippen, 67, a compulsively organized overseer of his family business, Travaille & Phippen, peers hopefully at a calendar showing confirmed bookings on container vessels sailing to points worldwide from the port of Oakland, 65 miles to the west on San Francisco Bay. Every week, he absorbs all manner of disheartening news: No shipping containers available, no vessel arriving, no space on board.
“My warehouses are already bulging at the seams,” Mr. Phippen says. “It scares the crap out of me, because in five months I’m going to get a new crop in the door. There’s no timeout in farming.”
Beyond a logistical torment, the crisis assailing almond producers is inflicting deep financial consequences, from diminished revenues to higher costs for storage. The same can be said for a broad array of other American agricultural exporters — from wheat growers in North Dakota to soybean producers in Nebraska — as shipping crops to customers has become maddening to the point of futility.
Most of the almonds stuck in Mr. Phippen’s warehouses have already been purchased by buyers across the water, but he cannot collect payment until they make it onto a ship.
“Those almonds aren’t worth squat in the warehouse,” he says. “They are worth a lot of money in Dubai.”
The exasperation of agricultural exporters amounts to the latest chapter of the Great Supply Chain Disruption, the tumultuous reordering of international trade and transportation amid the worst pandemic in a century. At the center of the story is the shipping container — the steel box that revolutionized commerce, allowing unfathomable quantities of goods to be carried around the planet.
Shipping companies — which last year collectively secured profits reaching $190 billion — harvested especially enormous returns on their routes from Chinese ports to the West Coast of the United States.
Traditionally, carriers unload containers arriving from China at the twin ports of Los Angeles and Long Beach, and then ship empties up to Oakland, where they are reloaded with almonds and other agricultural crops.
But in recent months, the carriers have put growing numbers of empty containers back on ships immediately. The companies can make more money sending the valuable containers directly back to Asia, where they are refilled with goods destined for American consumers.
Almond growers like Mr. Phippen have been left with sharply limited options to deliver their wares to customers abroad. Throughout California, more than 1.1 billion pounds of almonds from last year’s harvest are sitting in warehouses, a volume roughly one-third larger than this time last year, according to the Almond Alliance of California, an industry trade group.
“Foreign carriers are being allowed to disrespect us, and we can’t do anything about it,” says Aubrey Bettencourt, the association’s president. “We have no recourse.”
As the Biden administration contends with public anger over inflation, the president has seized on the shipping industry as a central part of the explanation. President Biden used his State of the Union address to excoriate carriers for mistreatment of “American businesses and consumers,” while vowing a “crackdown.”
Daniel B. Maffei, chairman of the Federal Maritime Commission, which regulates the shipping industry, promises to hold the carriers to account.
Understand the Supply Chain Crisis
“Government should stand on the side of those facing an unfair advantage when they have a legitimate grievance against big powerful companies,” says Mr. Maffei, who has served on the commission since 2016 and was named chairman last month by Mr. Biden. The commission is “actively looking to investigate cases where exporters are being pushed around by carriers or, worse, ignored by them,” he added.
Recently passed bills in the House and Senate would bolster the commission’s authority to investigate complaints and take action.
“The market is dysfunctional from the standpoint of American exporters,” says Representative John Garamendi, a California Democrat, who sponsored the legislation in the House.
But the shipping industry counters that it is being scapegoated for the broad turmoil unleashed by the pandemic amid booming demand for goods produced in Chinese factories, from exercise bikes to kitchenware. Despite floating traffic jams at major ports, a supposed shortage of truck drivers and a dearth of warehouse space, the carriers have managed to move record volumes of cargo.
“There’s a frustration that really complex problems are getting sound-bited to the point where policymakers aren’t dealing with the structural challenges,” says John Butler, president of the World Shipping Council, a trade association in Washington.
He blamed changes in supply and demand for rising shipping costs, while warning that federal intervention could worsen troubles.
“Do people really believe that having the federal government on the dock with a clipboard saying, ‘That box goes on the ship, that one doesn’t,’ is more efficient and fair than letting the market sort it out?” Mr. Butler says.
Crossing the Water
Most of the time, James Blocker would be cheering on an argument like the one the shipping industry is making — let the markets decide. But his predisposition against bureaucratic intervention has been tested by his predicament. As an exporter, his job is to move Mr. Phippen’s almonds across the ocean. Right now, booking passage on ships is bordering on impossible.
“I feel helpless,” he says.
Mr. Blocker’s company, Valley Pride, is among the largest exporters of almonds in California, the most bountiful agricultural economy in the United States.
Every year, California farmers produce more than three billion pounds of almonds, or about 80 percent of the world’s supply. Nearly all those nuts are harvested on more than 6,000 farms in the Central Valley — a flat, arid zone characterized by relentless sunshine, furnace-like summer heat and some of the most prodigious soils on earth.
Mr. Blocker grew up in the Valley, on the same land that his great-grandfather purchased after arriving nearly a century ago, in the aftermath of the Dust Bowl that ravaged his native Oklahoma. He spent his childhood roaming the rural fringes of what is today greater Fresno, one of the fastest-growing metropolitan areas in the country, and a community centered on the business of growing food.
Fresh from college at Fresno State, Mr. Blocker worked as a commodity trader for Cargill, the agribusiness conglomerate. In 2013, he started Valley Pride.
The business includes an orchard and a packing plant, but its heart is an enormous sales and distribution operation that buys almonds from growers throughout California and exports them around the world.
Last year, Valley Pride sold 140 million pounds of nuts while securing revenues reaching $350 million.
Though Valley Pride is generally compelled to pay its growers no later than a month after an outbound shipment arrives at a port, the company does not itself get paid until the almonds make it to their final destination.
The chaos roiling shipping has widened the time between those two events. That has forced the company to tap its credit line, expanding what it has borrowed to about $8 million from less than $2 million, Mr. Blocker says.
Tall and sinewy, Mr. Blocker, 41, is a study in the contrasts of modern agribusiness. He drives a pickup truck, has a thick beard and wears cowboy boots, while holding up his faded jeans with a giant silver rodeo-style belt buckle. He crouches in the dirt at his orchard, tending to a leak in the irrigation system. Yet he spends most of his days inside a glassed-in office in a compound in North Fresno, across the street from a state office building. Trophies from his hunting trips — deer skulls with antlers — are mounted over his desk, above photos of his wife and three children.
“I’m pretty redneck,” he says. “The big city, the glitz and glamour doesn’t really do much for me.”
Mr. Blocker’s partner, Sunny Toor, was born in the Indian state of Punjab, worked as a banker in Canada and travels the world finding new markets for California almonds. Valley Pride’s senior vice president for sales, Sorbon Sharifov, grew up in Tajikistan and speaks five languages — Persian, Russian, Arabic, Tajik and English — which is useful as the company pushes into Central Asia.
But lately, the shipping industry has impeded that expansion.
Last July, a major buyer in Dubai signed a contract to purchase two 40-foot containers’ worth of almonds that were supposed to be shipped in October. Valley Pride booked passage on a vessel operated by Mediterranean Shipping Company — the world’s largest container carrier — for a journey from Oakland to Malta via the Panama Canal, and then on another ship bound for Dubai through the Suez Canal.
But the containers did not make it onto a carrier until Feb. 14. By the time the almonds reached Dubai in March, their value had dropped by $50,000. The buyer claimed that the initial contract had expired and demanded a discount.
Mr. Toor and Mr. Sharifov spent most of February in Dubai, dining with customers to mollify their anger over delays and fend off demands for price breaks.
In a typical week, Valley Pride dispatches 50 containers full of almonds, the vast majority out of Oakland. In recent weeks, the company has struggled to confirm just five bookings. Even those have tended to be “rolled over” in shipping parlance — bumped to a later date — when loading day arrived and no containers could be found.
“That’s happening week after week,” Mr. Blocker says. “They tell us, ‘We don’t have equipment.’ What I hear is, ‘We do have equipment, but we’re not going to give it to you.’”
Before the pandemic, about 40 percent of all containers leaving the ports of Los Angeles and Long Beach were loaded with goods and the rest were empty, according to Sea-Intelligence, a shipping consultancy based in Copenhagen. But over the past year, carriers have shipped more empties back to Asia, with the share of outbound loaded containers dropping to 30 percent at Long Beach and 21 percent at the port of Los Angeles.
Carriers have also bypassed Oakland with increasing regularity — something that occurred only about 1 percent of the time two years ago, according to Sea-Intelligence, yet was happening nearly 25 percent of the time by late last year.
Meanwhile, carriers have raised shipping rates. In June, Mediterranean Shipping was charging $1,400 to move a 40-foot container from Oakland to Dubai. This month, the carrier raised the fare to $7,700, while refusing to honor previous rates on bookings that had been repeatedly rolled.
Last year, Valley Pride had logged about $100 million in revenue by the end of March. This year, it has tallied half that.
“I’m pulling my hair out,” Mr. Blocker says. “We’re in a panic situation.”
A Different Route
Just after 8 on a recent morning, Mr. Blocker and Mr. Toor hold a conference call with Peter Friedmann, a former Capitol Hill staffer who runs the Agriculture Transportation Coalition, a Washington advocacy and lobbying group representing exporters.
How the Supply Chain Crisis Unfolded
The pandemic sparked the problem. The highly intricate and interconnected global supply chain is in upheaval. Much of the crisis can be traced to the outbreak of Covid-19, which triggered an economic slowdown, mass layoffs and a halt to production. Here’s what happened next:
With the studied patience of a professional wise man, Mr. Friedmann listens to their laments and assures them, by way of consolation, that their problems are a nearly universal affliction.
Hay farmers, who send bales across the Pacific to feed livestock in Asia, are not even bothering to cut their crops this year, given the near-impossibility of finding room on ships.
Valley Pride has looked into hauling almonds east to the port of Savannah, Ga. But the train passage across the country alone could take two weeks.
Mr. Blocker has just returned from a reconnaissance trip to Houston, where containers are more abundant. He has lined up warehouse space and is looking into trucking his cargo there, then shipping out of the Gulf of Mexico.
Trucking to Houston will add $2,800 to the cost of sending a container. And his logistics team has discovered that there are no bookings available from Houston to Dubai until the middle of June. Plus, they entail “premium” charges of $5,200, more than double the going rate of $2,400.
Still, this seems worth pursuing. The alternative is staring at bags of almonds stuck in warehouses.
Mr. Friedmann says he has pressed Biden administration officials to force the carriers to pick up exports in Oakland. He suggests the White House could implore the heads of shipping carriers to make this problem go away, or prepare for executive branch intervention. Some carriers are already expanding export capacity.
Still, he notes that agricultural exporters are competing for space on ships with enormous importers like Amazon and Walmart. They traditionally incur much higher rates than exporters, and can afford to pay the premiums carriers are demanding.
That spread has been widening. Before the pandemic, importers shipping goods from China to the West Coast of the United States paid two to three times as much as American agricultural exporters shipping goods in the opposite direction, according to Freightos, a cargo booking platform. Now, importers are paying 10 times as much.
Mr. Blocker grimaces.
“I like free enterprise,” he says. “I hesitate to get the government and bureaucracy involved. But we are at that point where we are desperate, and we’ve run out of options.”
One of his logistics people pops into the office. She has managed to book five containers from Oakland to Dubai for a couple of weeks forward.
“It’s a piss in a big ocean,” Mr. Blocker says. “I just feel like we’re in the land of the forgotten.”
A Sick Feeling
The next day, Mr. Blocker drives 110 miles north to Manteca to visit his most important customer, Mr. Phippen.
Low gray clouds hover over the Valley as his truck threads a vast expanse of orchards — newly planted almond trees giving way to brushy orange trees, and then a grid of pistachio trees whose branches weave mischievously skyward, like a garden fit for a haunted house.
The towns along the route display the centrality of farming in the Central Valley. He passes a well and pump company, a tractor showroom, a seed distributor.
Mr. Phippen greets him in a conference room tucked in a utilitarian building on the outskirts of town.
A third-generation Central Valley farmer, Mr. Phippen has sunburned cheeks that attest to the hours he spends outside, even well into his seventh decade.
“There isn’t anything in this business that I haven’t done personally,” he says.
He presides over a 2,500-acre orchard, a shelling plant that squeezes almonds out of their armored enclosures, a processing plant that pounds nuts into powdered form, a pair of warehouses and a mountain of discarded shells that he sells as feed to surrounding dairy farms.
Much of almond processing amounts to shaking trees, using heavy equipment to scoop up the resulting rain of material and then feeding the harvest into a diabolical assortment of machines that separate out the valuable bits from the detritus — pebbles, glass shards, twigs.
Mr. Phippen, meticulous about seemingly everything, stops and frowns as he wanders around his warehouse, noticing one bag of almonds that is sagging ever so slightly to the left.
“I want them standing up straight,” he says.
“I’m a control freak,” he adds — not by way of apology, but as a point of pride. “When I have to count on other people to do things for me, I just don’t trust it will get done right.”
His attention to detail has allowed him to cater to the most lucrative markets like Japan and Dubai, where buyers are famously discerning, and where the appearance of his almonds — free of scuffs, no broken pieces — has allowed him to charge a premium.
Mr. Phippen delights in the process and disdains transactions with customers, which he finds stressful and distracting, leaving that part to Mr. Blocker. The two men talk every day, sometimes more than once.
What they talk about lately is how to get containers onto ships. Mr. Phippen’s warehouse is now full of enough almonds to fill 678 containers.
In the busiest months of the year, he needs about 100 containers to handle his usual flow of exports. In January, he shipped 66. In February, 55, and in March fewer than 50.
He flashes a look of incomprehension, of indignation.
“You get to the point where you’re defeated before you even get to work,” he says. “It’s a sick feeling.”
He has shelled out $820,000 to buy 3,000 more storage bins for his warehouses. He is spending another $700,000 to build an additional warehouse.
But he cannot shake the suspicion that he has become a rube in a global economy run for the benefit of others.
“There’s a lot of people taking advantage of the situation,” he says. “Somebody’s screwing with us. We’re getting jacked around here.”